Sign Up

Forgot Password

Rising interest rates are already drying up credit for Canadian households. Bank of Canada (BoC) numbers show household credit hit another all-time high in August. More concerning is the rising balance is seeing a rapid decline in growth. Rising rates have sent the annual pace of growth to the lowest it’s been over 35 years.

Canadians Owe Over $2.145 Trillion In Debt

Even with slowing growth, Canadians were able to squeeze out a new record for household debt. The balance of household debt at large lenders reached $2.145 trillion in August, up $.7.528 billion from the month before. The annual pace of growth works out to 3.72%, which is actually the slowest it’s been since 1983. That’s all kinds of impressive when you realize that interest rates were over 5x higher in 1983. Let’s break this down.

Canadian In Household Debt Outstanding Change

The annual percent change of total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Canadians Have $1.52 Trillion In Residential Mortgage Debt

Outstanding mortgage credit reached a new high, but growth is tapering fast. Outstanding mortgage credit hit $1.52 trillion in August, up $4.22 billion from the month before. That brought the annual pace of growth to 3.61%, falling to the lowest levels since June 2001. It’s worth taking a quick dive through our mortgage breakdown to see what was happening in 2001.

Canadian Household Debt Outstanding

Total debt held by Canadian households, in Canadian dollars.

Source: Bank of Canada, Better Dwelling.

Canadians Add Another $3.304 Billion In Consumer Credit

Consumer credit reached a new record, and actually a small acceleration in growth. The outstanding balance reached $618.32 billion in August, up $3.30 billion from the month before. The annual pace of growth hit 4%, a touch higher than the same time last month.

Canadian Household Debt Change

Annual percent change in debt held by Canadian households.

Source: Bank of Canada, Better Dwelling.

The pace of household credit growth is falling to levels Canada doesn’t have a lot of experience with. On the surface, it seems great since everyone is being told debt is bad. However, in credit driven economies, this is a sign that economic growth will slow. Slowing credit growth and rising rates are often seen in the later stages of the credit cycle.

42 Comments

COMMENT POLICY:We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

I’ve been saying this a lot recently, but this doesn’t resemble the 1990s, it resembles the 1980s recession. We’re seeing further divergence from the US, and deterioration of our leading indicators. I’m not fear mongering, and think it’s going to be the end of the world. Canada did just fine after the double 80s recessions. It just won’t be as easy as it was during the Great Recession.

I don’t agree at all. The 80’s saw rapid wage inflation that stoked interest rates higher. Real wage growth has been flat in Canada for decades now and household debt levels are sky high compared to the 80’s. In the 80’s Canadians were still savers and had a high savings rate while today is the exact opposite. We also had a huge manufacturing sector and a more diversified economy Households couldn’t be more ill-prepared for a recession or higher interest rates.

There seems to be a disconnect between what everyone thinks immigrants do. If you bring them from countries that are doing better than Canada, you get Vancouver. It’s not fun in Vancouver when your limited to local incomes, and have to compete with wealthy astronaut families.

Right? People are mad about Nigerian/Salvadorian/Haitian refugees? Naw. Struggling people who want a better life? Those were my ancestors 60 years ago. They’re cool with me. It’s the Chinese/Russian/Gulfie hot money that needs to be pushed out.

To da moon! Second half recovery of real estate sales will push that right up again. As long as people can money launder in Canada, and we have lax controls, magic amounts of debt will continue to rise.

Wage gains have been miniscule and have now slipped beneath inflation. Home prices were flat in September according to the new Teranet report released today. OSFI just announced their intention to seriously crack down on equity lending. And interest rates… are going up. People will be adapting to a new normal alright. But that won’t involve jumping back into the market.

Agreed! Comparison would be highly informative. As years have gone by, the Japanese buildup and crash appears to be the most relevant to the Canadian cycle witnessed thus far. Statement is purely anecdotal. Would love a concrete analysis made public

It would be something else to see Japanese-style monetary policy hit Canada for 30 years. We hear of Tokyo as a futuristic wonderland, but if you’ve actually lived there, you’ll notice that there’s tons of empty houses because no one wants the hassle and debt. The government there had to pass a law that says they can start seizing them if the owner can’t be reasonably found.

You can’t even plant a vegetable garden this time around. Damn raccoons will eat everything. Can’t heat your home with firewood either….most homes don’t have fire places. Well, that is what I recall from the early 80’s. 1983 was a dark time in my life. Hope everyone’s wrong on 2020 predictions. I would not want my son to experience that darkness.

I heard someone on TV say if there was a NAZI uprising in the near future, it wouldn’t be exactly like the 40s. There would be social media, it would be glamorized, there would be apps, and monetized outrage. That’s how a 1980s style recession would be. The horrible things in the 1980s, but with a slick tech and reality wash over it.

Agreed. Emotions would be way higher today than 1982. Folks would be instagramming pics of their empty pantries and unplanned weight loss…gofundme’g emergency dental work…blogs would write about multifamily/dwelling internet router sharing. The guilt shaming would be endless.

How about a chart which includes the same statistics as above with residential real estate prices, rate of inflation, and interest rates? That would provide the missing information to the incomplete picture presented.

Pull your head out of your ass, and realize the chart above isn’t about home prices. It’s a leading economic indicator, which means it impacts employment – not your dumb house. JFC, the real estate industry is dumb as rocks.

You guys are hilarious. Total debt too high = OMG that’s bad. And then, oh, the debt’s growing slower than it has for decades = OMG that’s bad too! So what is it guys – you can’t diss both high debt *and* slowing debt growth.

It may be a little too complicated for someone like you, but credit growth is finite to the expansion and contraction cycles. If the BOC let it get too large, they require a massive contraction to fix it, or run into uncontrolled inflation. The contraction begins by, I know you’re slow but I think you can figure this one out…. nothing? The contraction begins when growth starts to slow.

This isn’t for you schmucks that own a home. It’s credit controls, which impacts the broader economy, which later impacts home prices.

Not every overvaluation needs a capitulate to correct. Slowing debt growth can allow the underlying economics (income) to ‘catch up’ to overall debt levels. It’s what’s called a soft-landing. But I guess the idea of flattening debt and economic growth without an actual full-blown recession is perhaps a little too complicated for someone like you to grasp?

Nobody knows what’ll happen – all I’m saying is that we should consider that slowing debt growth can be a positive sign. Just like slowing real estate valuations. They don’t mean we’re going off a cliff when we reach the top of the hill – it could just be a plateau.

Hmmm…I like you. Here’s a bet. I bet that given an entire weekend you cannot find a SINGLE credible source to suggest wages are appreciating at a consistent level that within 10 years, assuming ZERO growth but also no depreciation in RE prices, consumers in GVA and GTA will be able to afford a 20% down plus the monthly and all other costs….ok, I’m kidding, we know the answer because BD basically posted this last year. I think it was 15+ for GTA and like 20+ for the shit slurry out West and that was assuming some unrealistic saving rate. So you’re wrong. In terms of the thought , ‘nobody knows what’ll happen’ I guess that is true with everything…I could jump off a 10 story building and live or I could buy a lottery ticket and hit bank. I can’t say it will happen today or tomorrow or next month but within 6-12 months, I can assure you we will not be in a better place than we are today. Tick tock. BD4L.

GeezLouise, Bluetheimpala is correct here, you will need 15-20 years for the fundamentals to catch up and at the same time prices must stay exactly where they are today.

But if you still think it’s doable think again because construction costs must be frozen as well along with construction workers’ wages for the next 15-20 years and existing RE investors should stay in the market be also OK to accept 0% appreciation (or in other words 30% property value loss due to inflation.)

There are much more conditions which must be met in order for “soft landing” to work but even those ones enough to understand that “soft landing” is just a fancy political term.

Here is an example that is relatively simple to understand; love. I love my hamster and he loves the pants I make for him (sequin onesy a la Elton, its friday!) and he loves me. He hops into my hand I pet him, tickle his nose and put pants on him. It was gradual and constant growth and now we’ve reached peak love over the course of 10 months. Like 10 loves a month for a total of 100 love. Now if we’d attempted full love right off the bat it would’ve ended up with a lot of hamster urine, small bite sized wounds and a dead hamster. My point? Rates go up and down. Assets go down and up. the issue is not binary up = bad, down = good. Adapting to new climates is natural but having credit GROWTH drop below the 10 year average all because mortgages increased by 1% point is fucking weird bro. My parents borrowed in the 80s at over 10% but credit growth was going gang busters. Think about that. A bubble imploding is often highlighted by a normalization in some underlying factor and instead of returning to the previous levels all hell breaks loose as the inefficiencies, bad money which tends to get leveraged (think CLOs) bubbles up as underlying asset values drop. Annyywhooo…I love hamster pants. Tick tock. BD4L.